Saudi Arabia to test robo-advisory services

Saudi Arabia’s capital market regulator gave approval on July 30 for two companies to test the use of computer-generated advice for investors. The two firms, Wahed Capital and Haseed Investing, will test automated platforms that provide their clients with advice on securities and investment schemes. The companies will also offer automated online discretionary investment management.

Approval of these tests comes amid Saudi Arabia’s drive to encourage the use of financial technology. Last year, the country partnered with the UAE to begin developing fintech for cross-border settlements.

In addition to providing tailored investment advice in a cost-effective and scalable way, robo-advisors could improve financial inclusion

Globally, it is estimated that between $2.2trn and $3.7trn in assets will be managed by robo-advisory services by 2020. Throughout the Middle East, many countries are preparing to capitalise on this trend.

The Central Bank of Bahrain has issued a set of directives for the regulation of robo-advisors. Earlier in July, Abu Dhabi launched a new governance and regulatory regime for computer-generated investment advice.

There are a number of benefits to these computerised investment services. In addition to providing tailored investment advice in a cost-effective and scalable way, robo-advisors could improve financial inclusion.

Historically, wealth management and investment services have only catered to those with sizeable assets. Robo-advisors, however, are typically designed for digital-first investors looking to keep costs low. Therefore, it’s hoped that they could make financial advice and asset management more accessible to the wider population.

These services are still in the early stages of development and some firms have struggled to unlock their potential. Additionally, customer acquisition can be a challenge without wider trust in the technology.

Investec is closing its robo-advisory service due to a lack of investor appetite, after reporting losses of £32m (€35m) over the course of two years. Moving forward, regulators will need to guarantee the objectivity and transparency of these services before the technology is successfully rolled out.